United States District Court, N.D. New York
February 3, 2005.
JAMES JAY BALL, Appellant,
A.O. SMITH CORPORATION, Appellee.
The opinion of the court was delivered by: LAWRENCE KAHN, District Judge
MEMORANDUM-DECISION AND ORDER*fn1
Presently before the Court is an appeal by Debtor James J. Ball
("Debtor"). Debtor, a licensed attorney, appeals from several
rulings of the Bankruptcy Court for the Northern District of New
York in an action brought by Plaintiff A.O. Smith Corporation
("AOS"). Specifically, he asks this Court to reverse the rulings
of the bankruptcy court and now order that (1) Debtor is
discharged from paying an award of attorney's fees that was
granted by the U.S. District Court in Louisiana because the
district court did not conclude that Debtor acted willfully or
maliciously as is required under 11 U.S.C. § 523(a)(6); (2) the
admission of unauthenticated copies of the transcripts from
proceedings in the District Court of Louisiana violated the
Federal Rules of Evidence, and therefore they should have been
excluded from evidence at the bankruptcy trial; (3) AOS should be
held in contempt of court because it violated the automatic stay
by filing (a) in the Eastern District of New York, a motion for
costs stemming from a scheduled deposition of Debtor and (b) in
state court, a motion to have Debtor's pro hoc vice status
revoked in that jurisdiction;*fn2 (4) it was mandatory for
AOS's counsel to withdraw from representation of AOS, pursuant to
Disciplinary Rule 2-110(b)(2), because they violated Disciplinary
Rule 5-102 by appearing as both a witness and legal advocate for
their client; and (5) pursuant to Local Bankruptcy Rule 9022.1,
the orders of the bankruptcy court are vacated because they were
never served on Debtor.
(a) Standard of Review
In reviewing the rulings of a bankruptcy court, a district
court applies the clearly erroneous standard to a bankruptcy
court's conclusions of fact, and de novo review to
conclusions of law. Yarinsky v. Saratoga Springs Plastic
Surgery, 310 B.R. 493, 498 (N.D.N.Y. 2004) (Hurd, J.) (citing to
In re Manville Forest Prods. Corp., 209 F.3d 125, 128 (2d Cir.
2000); In re Petition of Bd. of Dirs of Hopewell Int'l Inst.
Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002); Fed.R. Bankr.
P. 8013). Mixed questions of law and fact are reviewed de
novo. Ernst & Young v. Bankr. Servs. (In re CBI Holding Co.),
311 B.R. 350 (S.D.N.Y. 2004) (citing to In re Vebeliunas,
332 F.3d 85, 90 (2d Cir. 2003); In re AroChem Corp., 176 F.3d 610,
620 (2d Cir. 1999)). Under Rule 8013 of the Federal Bankruptcy
Rules, on appeal, "the district court . . . may affirm, modify,
or reverse a bankruptcy judge's judgment, order, or decree or
remand with instructions for further proceedings."
(b) Dischargeability of Attorneys Fees Awarded
The award of attorney's fees that Debtor now seeks to have
discharged was ordered by Judge
Tucker L. Melancon in Gatreau v. AOS, No. 98-CV-1187 (W.D. La.
2001). In that proceeding, Debtor, a licensed attorney,
represented a plaintiff who alleged fraud surrounding his
purchase of a used silo manufactured by AOS. With respect to the
merits of the action, the district court granted AOS's motion for
summary judgment and dismissed plaintiff's action with prejudice
because it was time barred. W.D. La. Tr. (Dkt. No. 1, Appellant
Ex. 6)*fn3 at 4-5. AOS then moved for sanctions against
Debtor pursuant to Rule 11, alleging that the frivolous lawsuit
was initiated only to harass and cause unnecessary litigation
expense. Id. at 6-7. AOS also sought sanctions pursuant to
28 U.S.C. § 1927 which were to be granted, in accordance with Fifth
Circuit precedent, only if the factual and legal arguments are
"unwarranted." Id. at 9-10.
After holding several days of hearings, Judge Melancon issued
his oral decision on January 31, 2001 that Debtor was to be
sanctioned because he filed the suit against AOS even though
"[t]here was not a colorable claim when the lawsuit was filed."
Id. at 10. Judge Melancon explained that "the prescription
issue as to the state law claim . . . and the statute of
limitations issue as to the RICO claim were so obviously abar
[sic] that under the circumstances it was unreasonable to bring
the suit in the first place [for] a reasonably competent
attorney, which [Debtor] should be. . . ." Id. at 11. The Fifth
Circuit affirmed the imposition of sanctions holding that "the
district court gave sufficient reasons for the sanctions award,
including the type and amount of sanctions." Gautreau v.
A.O.Smith Corp., No. 01-30336, slip op. at 2 (5th Cir. March 27,
Once Debtor filed for Chapter 7 bankruptcy, the parties
disputed whether the debt arising from the imposition of
sanctions should be discharged. The bankruptcy court held that it
is non-dischargeable pursuant to § 523(a)(6) which states that "a
discharge under [Chapter 7] . . . does not discharge an
individual debtor from any debt . . . for willful and malicious
injury by the debtor to another entity. . . ."
11 U.S.C. § 523(a)(6); In re Ball, No. 02-60810 (Bankr. N.D.N.Y. Feb. 10,
2004).*fn5 Debtor contends that the bankruptcy court erred
when it invoked this exception and held that the sanctions would
not be discharged. Debtor explains that the sanctions were
imposed because Judge Melancon concluded only that Debtor's
conduct was "unreasonable." Debtor claims that because Judge
Melancon did not hold that Debtor's conduct was "willful and
malicious," the debt is dischargeable and the exception to
discharge for debt's incurred willfully or maliciously, as set
forth in § 523(a)(6), is not applicable.
(ii) Standard of Review
Whether the factual findings satisfy the statutory requirements
of non-dischargeability pursuant to § 523(a)(6) is properly
characterized as a mixed question of law and fact which the court
reviews de novo. See Golant v. Care Comm, Inc.,
216 B.R. 248, 252 (N.D. Ill. 1997).
(iii) Willful Nature of Debtor's Actions
Based on the record before the Court, the bankruptcy court
properly ruled that the award of attorney's fees was not to be
discharged pursuant to the exception in § 523(a)(6). Collateral
estoppel prevents Debtor from relitigating Judge Melancon's
decision to impose sanctions. See Grogan v. Garner,
498 U.S. 279, 284 n. 11 (1991) (stating that "collateral estoppel
indeed apply in discharge exception proceedings pursuant to
section 523(a)"). Under principles of collateral estoppel,
therefore, this Court is bound by the district court's "factual
finding . . . that the filing of the lawsuit initially was
unwarranted and should never have been commenced, had a
reasonable investigation been made by Mr. Ball. . . ." W.D. La.
Tr. (Dkt. No. 1, Appellant Ex. 6) at 16.
Judge Melancon explained that Debtor's actions were "a clear
violation under Rule 11." Id. at 13. Moreover, Debtor's actions
in the course of representing plaintiff were so egregious that
even though the Fifth Circuit "sparingly applie[s]" the
imposition of sanctions under 28 U.S.C. § 1927, Judge Melancon
thought such an award was appropriate because "the proceedings
were unwarranted and should never have been commenced. . . ."
Id. at 13. Although it did not rely on it, the district court
also explained that it "has the authority under its inherent
power to sanction [Debtor]." Id. at 14. Therefore, pursuant to
Rule 11 and § 1927, the district court "shift[ed] . . . the
entire financial burden of the action . . . from the defendant
[AOS] to the plaintiff [Debtor]." Id. at 13.
The question before this Court is whether Debtor's actions in
Louisiana district court were willful and malicious, such that
the attorney's fees debt should not be discharged under the
exception of § 523(a)(6). All attorneys must act reasonably when
operating within the confines of our judicial system, and the
statements of Judge Melancon certainly demonstrate that the
Debtor did not. While Judge Melancon did not state on the record
that Debtor's actions were "willful and malicious," that is
inherent based on the imposition of sanctions under Rule 11 and §
1927. Under Fifth Circuit precedent, sanctions under § 1927 that
are imposed for an "`unreasonable' and `vexatious' multiplicative
proceeding[,] necessitates `evidence of bad faith, improper
motive, or reckless disregard of the duty owed to the court.'"
Mercury Air Group, Inc. v. Mansour,
237 F.2d 542, 549 (5th Cir. 2001) (quoting Edwards v. General Motors
Corp., 153 F.3d 242, 246 (5th Cir. 1998)); see also, State
St. Bank & Trust Co. v. Inversiones Errazuriz Limitada,
374 F.3d 158, 180 (2d Cir. 2004) ("Section 1927 authorizes the imposition
of sanctions only when there is a finding of conduct constituting
or akin to bad faith.") (internal quotations and citations
omitted); Morelli v. Service Am. Dining Servs., 1998 U.S. Dist.
LEXIS 5058, at *5 (N.D.N.Y. Apr. 3, 1998) (Scullin, J.) ("`The
term `willful,' as expressed in 523(a)(6), is synonymous with
intentional. . . . The statute requires not only intentional
conduct on the part of the debtor, but also intentional or
deliberate injury.'") (internal quotations and citations
omitted). Debtor even admitted that his conduct was found by
Judge Melancon to be "intentional conduct that was in bad faith."
July 17, 2003 Bank. Tr. (Dkt. No. 1, Appellant Ex. 5)*fn6 at
34. Therefore, based upon the statements of Judge Melancon and
the assessment of fees under § 1927, Debtor's conduct is properly
characterized as "willful and malicious." Although the district
court did not use the terminology found in § 523(a)(6), namely
that his conduct be "willful and malicious," it is clear from the
record that his actions rise to that level. The bankruptcy court
correctly held that this debt fits within the exception of §
523(a)(6) and should therefore not be discharged.
(c) Admission of an Unauthenticated Transcript
In support of its claim that the award of attorney's fees was
not dischargeable pursuant to § 523(a)(6), the only evidence
offered by AOS in the bankruptcy court's adversary proceeding
duplicates of the transcripts from the Western District of
Louisiana proceedings.*fn7 Debtor next contends that, even
if, as discussed above, the debt should not be discharged based
upon the application of § 523(a)(6) to the facts of the debt at
issue, the bankruptcy court's holding should be overturned
because relying on the transcripts violated the Federal Rules of
Evidence. Therefore, as that transcript should have been excluded
and it offered no other evidence in support of its claim, AOS did
not meet its burden to show that the debt was not dischargeable
pursuant to § 523(a)(6). See Morelli, 1998 U.S. Dist. LEXIS
5058, at *5 (noting that the party challenging the
dischargeability of a debt carries the burden of proving the
In sum, Debtor's objection is that the transcripts that were
admitted were not originals. Rather, the bankruptcy court
admitted duplicates of the transcripts from the Louisiana
proceedings because AOS did not bring the originals to the
bankruptcy trial. See July 17, 2003 Bankr. Tr. (Dkt. No. 1,
Appellant Ex. 5) at 8-19. The duplicates included the attached
court reporters' signed certification. Id. at 16-17. At trial,
Debtor contended that, as the transcripts were not originals,
they must be authenticated by a witness or otherwise excluded.
Nonetheless, the bankruptcy court admitted the transcripts
because, as certified copies of public records, they are
self-authenticating under Federal Rule of Evidence 901(4), and a
duplicate of such a record is admissible to the same extent as an
original under Federal Rule of Evidence 1003.
This Court reviews the bankruptcy court's evidentiary ruling
for an abuse of discretion. See, e.g., Manley v. AmBase,
Corp., 337 F.3d 237, 247 (2d Cir. 2003) (citations omitted).
Even if a bankruptcy court did abuse its discretion in admitting
evidence, the decision is reversible only if it
also affects a party's substantial rights. Daly v. Richardson,
2004 U.S. Dist. LEXIS 19635, at *7 (D. Conn. Sept. 28, 2004)
(citing to Schering Corp. v. Pfizer, Inc., 189 F.3d 218, 224
(2d Cir. 1999)).
In the present case, the bankruptcy judge did not abuse his
discretion. He properly ruled that a court transcript is
self-authenticating under Rule 902(4), which states that
"[e]xtrinsic evidence of authenticity as a condition precedent to
admissibility is not required with respect to . . . [a] copy of
an official record or report . . ., or of a document authorized
by law to be recorded or filed and actually recorded or filed in
a public office, . . . certified as correct by the custodian or
other person authorized to make the certification. . . ." The
trial transcripts, which contain the court reporters'
certifications, are therefore admissible as prima facie evidence
of what was said therein. See United States v. Lumuba,
794 F.2d 806, 815 (2d Cir. 1986). Therefore, the Western District of
Louisiana transcripts, in original form, are admissible even
without an authenticating witness.
Moreover, because these original transcripts are admissible,
duplicates would be admissible under Rule 1003. See United
States v. Grimmer, 1999 WL 1012571, at *2 (2d Cir. Oct. 14,
1999) (unpublished). Rule 1003 does list two exceptions, that the
duplicate is not admissible if "(1) a genuine question is raised
as to the authenticity of the original or (2) in the
circumstances it would be unfair to admit the duplicate in lieu
of the original." F.R.E. 1003.
With respect to the first exception, Debtor did not claim that
there is a question as to authenticity of the transcripts. He
stated at the bankruptcy proceeding that AOS "[doesn't] have a
witness who can attest to their copy being authentic. That's the
problem I have. . . ." July 17, 2003 Bankr. Tr. (Dkt. No. 1,
Appellant Ex. 5) at 15. In making these statements, Debtor simply
demands that the documents be authenticated by an in-court
witness, when in fact they are self-authenticating
under the Rules. He objects to the procedure used, but does not
object to the actual authenticity of the transcripts. Therefore,
the first exception does not apply here.
Considering the second exception, it is not unfair to admit the
duplicates, especially because the bankruptcy court noted that
Debtor had also listed these transcripts as a potential exhibit.
July 17, 2003 Bankr. Tr. (Dkt. No. 1, Appellant Ex. 5) at 11.
See also In re McCauley, 105 B.R. 315, 321 (E.D.Va. 1989)
(holding that state court transcripts ordering alimony and child
support were "plainly admissible" under the F.R.E. in subsequent
bankruptcy proceeding and objection to their admission was
"baseless" considering both parties had listed it as an exhibit
for the bankruptcy proceedings). Having enumerated them as an
exhibit himself, Debtor should have been aware of their contents
and able to object if they were not authentic or accurate.
Therefore, the bankruptcy court did not abuse its discretion in
admitting the transcripts under Federal Rules of Evidence 902(4)
(d) Violation of the Automatic Stay and Damages
The Debtor filed for Chapter 7 bankruptcy on February 13, 2002
in the Bankruptcy Court for the Northern District of New York.
See Bankr. Filing (Dkt. No. 1, Appellee Ex. 2). Debtor contends
that the following various post-petition acts by AOS constituted
violations of the automatic stay which went into effect upon the
filing of his bankruptcy petition.
On March 26, 2002, AOS filed an action in the Eastern District
of New York seeking to recover $5,184.28 in attorney's fees and
costs associated with the cancelled deposition of the Debtor that
was to have taken place on February 13, 2002. See E.D.N.Y.
Complaint (Dkt. No. 1, Appellant Ex. 16). Magistrate Gold denied
AOS's application, finding that the "application does not seek a
recovery for the type of misconduct that implicates public
policy, and the exception to the bankruptcy stay upon which it
relies does not apply." See In re Ball, No. 02-MC-013, slip
op. at 2 (E.D.N.Y. Apr. 15, 2002).*fn8
On or about April 26, 2002, AOS filed a motion in the General
Court of Justice, Superior Court Division, Halifax County, State
of North Carolina ("State Court"), seeking to have the pro
hac vice admission of the Debtor revoked in the civil
litigation entitled Jack H. Winslow Farms, Inc. v. T. Carl
Dedmon et al., a lawsuit commenced in the State Court against
AOS. See P.H.V. Motion (Dkt. No. 1, Appellant Ex. 15). On
August 30, 2002, AOS filed an amended motion in the State Court
which again sought to have the pro hac vice admission of
the Debtor revoked. See Amended P.H.V. Motion (Dkt. No. 1,
Appellant Ex. 17). The bankruptcy court found that the Debtor had
been admitted to appear pro hac vice in the State Court by
order, dated March 25, 2002. See In re Ball, No. 02-80127,
slip op. at 5 (Bankr. N.D.N.Y. Feb. 11, 2004).*fn9 Debtor
disputes this and states that he was admitted pro hac vice
on March 25, 1999.
On August 15, 2002, Debtor filed a motion in the bankruptcy
court for an order pursuant to § 362(h) of the U.S. Bankruptcy
Code, 11 U.S.C. §§ 101-1330 ("§ 362(h)") and the bankruptcy
court's civil contempt powers seeking actual and punitive damages
for these alleged violations of the automatic stay by AOS. See
§ 362(h) Motion (Dkt. No. 1, Appellant Ex. 12).
In its Decision dated February 11, 2004, the bankruptcy court
found that AOS did technically violate the automatic stay by
filing its motion in the Eastern District of New York on
March 26, 2002. See In re Ball, No. 02-80127, slip op. at 6
(Bankr. N.D.N.Y. Feb. 11, 2004). The bankruptcy court next found
that "the Debtor's pro hac vice admission was not granted
until March 25, 2002, approximately a month after the Debtor
filed his petition," and as a result AOS's action did not violate
11 U.S.C. § 362(a)(1)*fn10 ("§ 362(a)(1)") since the
proceedings could not have been commenced pre-petition, and did
not violate 11 U.S.C. § 362(a)(3)*fn11 ("§ 362(a)(3)") since
the alleged property, the pro hac vice admission, was
acquired post-petition. Id. at 6-7. Therefore, the bankruptcy
court concluded that AOS's attempts to revoke Debtor's pro
hac vice admission in North Carolina did not constitute a
violation of the automatic stay. Turning to the measure of
damages, the bankruptcy court concluded that Debtor "presented no
evidence of actual damages" and therefore was not entitled to any
award of actual damages. Id. at 8-9. Lastly, the bankruptcy
court found that there was no evidence to indicate that AOS's
actions were malicious and in bad faith, and therefore no basis
to award punitive damages. Id. at 9.
Debtor contends that the bankruptcy court erred (1) in refusing
to award damages under the bankruptcy court's contempt powers;
(2) in finding that Debtor incurred no damages as a result of the
alleged violations of the automatic stay; and (3) in finding that
actions to revoke Debtor's pro hac vice admission did not
constitute a violation of the automatic stay.
The Bankruptcy Code provides for an automatic stay to protect
the property of the
bankruptcy estate from the time a bankruptcy petition is filed.
11 U.S.C. § 362(a). Property of the estate includes all legal or
equitable interests of the debtor in property as of the
commencement of the case. 11 U.S.C. § 541. Where the automatic
stay is willfully violated, the individual injured by such
violation shall recover actual damages and may recover punitive
damages in the appropriate circumstances. 11 U.S.C. § 362(h).
The law in this Circuit is clear that sanctions for violations
of the automatic stay pursuant to § 362(h) are only appropriate
as to debtors who are natural persons. See In re Chateaugay
Corp., 920 F.2d 183, 186-187 (2d Cir. 1990). "For other debtors,
contempt proceedings are the proper means of compensation and
punishment for willful violations of the automatic stay." Id.
at 187. Thus, where a debtor is a corporation, sanctions can be
imposed only as a result of a contempt finding, on a showing of
maliciousness or a lack of a good faith argument and belief that
the party's action were not in violation of the stay. See In
re Crysen/Montenay Energy Co., 902 F.2d 1098, 1104 (2d Cir.
Generally, the courts have held that the remedial purpose of
11 U.S.C. § 362(h) warrants a standard that makes it easier to
impose sanctions than pursuant to contempt proceedings. A
contempt proceeding requires a finding of maliciousness or lack
of a good faith argument and belief that the party's actions were
not in violation of an automatic stay, whereas under
11 U.S.C. § 362(h), the statute provides for "damages upon a finding that the
defendant knew of the automatic stay and that the defendant's
actions which violated the stay were intentional." In re
Crysen/Montenay Energy Co., 902 F.2d at 1104-05.
(a) The Bankruptcy Court's Contempt Powers
Debtor contends that the bankruptcy court limited the
proceedings to consideration of relief
under § 362(h) and ruled that contempt was not available as a
form of relief to the individual debtor. A review of the record
before this Court shows that while the bankruptcy court did
question the legitimacy and intelligence of an individual debtor
pursuing a contempt charge over actual and punitive damages under
§ 362(h),*fn12 the bankruptcy court did not rule that Debtor
could not present evidence of to meet the standard of civil
contempt.*fn13 See Dec. 12, 2002 Bankr. Tr. (Dkt. No. 1,
Appellant Ex. 22) at 2-5, 8.
In its decision dated February 11, 2004, the bankruptcy court
did not issue any relief to Debtor under its civil contempt
powers, instead analyzing the claim under the rubric of § 362(h)
pursuant to case law. See In re Ball, No. 02-80127 (Bankr.
N.D.N.Y. Feb. 11, 2004). The bankruptcy court found that AOS's
conduct did not rise to the level of maliciousness required for
punitive damages under § 362(h), finding that the act of filing a
motion in the Eastern District of New York seeking costs and
attorney's fees was made with a good faith argument. Id. at 9.
Since the Debtor's motion for contempt requested damages for
alleged violations of the automatic stay, the bankruptcy court
did not err in construing the motion in accordance with the
relief requested. Debtor acknowledged that the standard for
awarding sanctions for contempt, namely maliciousness on the part
of AOS, is roughly equivalent to the standard of awarding
punitive damages.*fn14 In light of the bankruptcy court's
conclusion that AOS's action lacked
maliciousness, it leaves no doubt that the bankruptcy court in
deciding a contempt motion would exercise its discretion to do
what it has already done: deny damages. On this record, we cannot
say that such a denial would be an abuse of discretion.
Based on the bankruptcy court's determination that AOS did not
act maliciously and possessed a good faith argument in its
technical violation of the automatic stay, the bankruptcy court
did not err in failing to hold AOS in contempt of court.
(b) Measure of Damages
Debtor next contends that the bankruptcy court erred in finding
that Debtor incurred no damages as a result of alleged violations
of the automatic stay. See In re Ball, No. 02-80127, slip.
op. at 8-9 (Bankr. N.D.N.Y. Feb. 11, 2004). For § 362(h)
purposes, actual damages should be awarded only if there is
concrete evidence supporting the award of a definite amount.
See In re Sumpter, 171 B.R. 835, 844 (Bankr. N.D. Ill. 1994).
"The party seeking damages pursuant to § 362(h) has the burden of
proving what damages were incurred and what relief is
appropriate." In re Sucre, 226 B.R. 340, 349 (Bankr. S.D.N.Y.
1998); In re Dominguez, 312 B.R. 499, 508 (Bankr. S.D.N.Y.
2004). A damages award cannot be based on mere speculation, guess
or conjecture. See In re Sumpter, 171 B.R. at 844; In re
Clarkson, 168 B.R. 93, 95 (Bankr. D.S.C. 1994) ("The moving
party bears the burden of proof in order to prevail on an action
for violation of the automatic stay and must prove his case by
clear and convincing evidence.").
A bankruptcy court's decision regarding the amount of damages
is a factual finding and will not be disturbed unless the finding
is clearly erroneous. See In re Sucre, 226 B.R. 340, 349
S.D.N.Y. 1998); In re Fugazy Express, Inc., 124 B.R. 426, 430
(Bankr. S.D.N.Y. 1991); Archer v. Macomb County, 853 F.2d 497,
499 (6th Cir. 1988).
A review of the record shows no attempts by Debtor to provide
any documentation or testimony at the July 17, 2003 trial as to
the damages he suffered as a result of any violation of the
automatic stay. Debtor's memorandum of law contains no references
to any actual damages caused by the violation of the automatic
stay. Consequently, the Debtor has failed to satisfy his burden
of establishing that the bankruptcy court's findings of fact are
(c) Debtor's Pro Hac Vice Admission
Debtor next contends that the bankruptcy court erred in finding
that actions by AOS to revoke Debtor's pro hac vice
admission in North Carolina did not constitute a violation of the
automatic stay. As Debtor highlights, AOS's amended complaint
seeking to revoke Debtor's pro hac vice admission dated
August 30, 2001 states that Debtor was admitted pro hac
vice on March 25, 1999. See AOS Amended Motion (Dkt. No. 1,
Appellant Ex. 17) at 1. This conflicts with the bankruptcy
court's finding that Debtor was admitted pro hac vice on
March 25, 2002. See In re Ball, No. 02-80127, slip op. at 6
(Bankr. N.D.N.Y. Feb. 11, 2004). As a result of this finding, the
bankruptcy court concluded that Debtor's pro hac vice
admission occurred after his bankruptcy petition was filed and
therefore AOS's actions to revoke Debtor's pro hac vice
admission did not constitute violations of the automatic stay
pursuant to 11 U.S.C. § 362(a)(1) and § 362(a)(3). Id. at 7-8.
Debtor offers no other evidence of the correct date of his pro
hac vice admission.
Regardless of the exact date of Debtor's pro hac vice
admission, AOS's attempt to have Debtor's pro hac vice
admission revoked does not constitute a violation of the
§ 362(a)(1) provides that a bankruptcy petition shall operate
as an automatic stay of "the
commencement or continuation, including the issuance or
employment or process, of a judicial, administrative, or other
action or proceeding against the debtor." 11 U.S.C. § 362(a)(1).
§ 362(a)(3) is the only other subsection that might have
applicability to the facts herein. § 362(a)(3) provides that a
bankruptcy petition operates as a stay of "any act to obtain
possession of property of the estate or of property from the
estate or to exercise control over property of the estate."
11 U.S.C. § 362(a)(3).
§ 362(b)(4) expressly excepts certain post-petition proceedings
from the operation of the automatic stay, including any action
brought before a governmental regulatory agency to enforce its
police or regulatory powers. 11 U.S.C. § 362(b)(4). The state
power of licensure, which safeguards the public from wrongful
future conduct of corrupt or incompetent professionals, falls
squarely within the purview of the government regulatory
exemption to the automatic stay. See In re Friedman &
Shapiro, 185 B.R. 143, 145 (S.D.N.Y. 1995); In re North,
128 B.R. 592, 600-01 (Bankr. Vt. 1991). Specifically, courts have
found that attorney disciplinary proceedings are not subject to
the automatic stay. See In re Wade, 115 B.R. 222, 228 (B.A.P.
9th Cir. 1990); In re Friedman & Shapiro, 185 B.R. at 145; In
re Williams, 158 B.R. 488, 491 (Bankr. Idaho 1993); In re
Hanson, 71 B.R. 193, 194 (Bankr. E.D. Wisc. 1987).
The fact that the attempted revocation of Debtor's pro hac
vice admission originated from AOS and not the North Carolina
State Court itself is not controlling. In In re McMullen,
386 F.3d 320, 328 (1st Cir. 2004), the court found that a creditor's
post-petition filing of a complaint to the state Division of
Registration for Real Estate Agents for possible license
revocation did not constitute the commencement of a proceeding
under § 362(a)(6). In re McMullen, 386 F.3d 320, 328 (1st Cir.
2004). The court based its finding on the conclusion that §
362(a)(1) should not
"dissuade private parties from providing governmental regulators
with information which might require enforcement measures to
protect the public. . . ." Id.
In the present case, any action by the State Court of North
Carolina to determine the pro hac vice status of a litigant
before it qualifies as a valid exercise of the state's police and
regulatory powers and is thus exempted from the automatic stay.
The fact that the possible revocation of the admission was
initiated by a creditor is immaterial since it does not alter the
purpose of the determination by the court to protect the public
from professional misconduct. Therefore, the actions taken by AOS
in seeking to have the Debtor's pro hac vice admission
revoked did not constitute a violation of the automatic stay
pursuant to § 362(a)(1) and § 362(a)(3).
(d) Violation of Disciplinary Rule 5-102 and 2-110
Debtor asks this Court to reverse the rulings of the bankruptcy
court denying Debtor's post-trial motion to disqualify AOS's
Prior to the July 17, 2003 trial, AOS listed Mr. Eyres and Mr.
Morris, both attorneys of record for AOS, as potential witnesses.
See AOS's Witness List (Dkt. No. 1, Appellant Ex. 11). At the
July 17, 2003 trial, Debtor made a pretrial motion seeking to
strike any AOS attorney from AOS's witness list, citing the New
York Code of Professional Conduct, Disciplinary Rule 5-102
(22 NYCRR § 1200.21) ("D.R. 5-102"). See July 17, 2003 Bankr. Tr.
(Dkt. No. 1, Appellant Ex. 5) at 3-4. Based on the belief of
AOS's counsel that the issue was moot since they planned only to
submit the record that was produced before the United States
District Court in the Western District of Louisiana, dated
January 31, 2001, they submitted the record and did not call
either AOS attorney as a witness. Id. at 7-8, 31-32.
On October 28, 2003, Debtor submitted an Order to Show Cause,
requesting the pro hac vice admission of AOS's counsel be
revoked for their alleged violations of D.R. 5-102(a) and that
they therefore be required to withdraw pursuant to D.R.
2-110(b)(2).*fn15 See October 28, 2003 O.S.C. (Dkt. No. 1,
Appellant Ex. 19).
On November 20, 2003, the court heard arguments regarding the
Order to Show Cause. The bankruptcy court denied Debtor's motion,
finding that the continued representation of AOS by Mr. Eyres and
Mr. Morris was not a violation of the disciplinary rules and
admonished the Debtor that it perceived the request to be an
attempt to delay the submission of his post-trial memorandum of
law. See Nov. 20, 2003 Bankr. Tr. (Dkt. No. 1, Appellant Ex.
20)*fn16 at 17-18. Debtor now appeals this determination.
D.R. 5-102 "Lawyers as Witnesses" requires that a lawyer not
act or accept employment as an advocate on issues of fact before
any tribunal "if the lawyer knows or it is obvious that the
lawyer ought to be called as a witness on a significant issue on
behalf of the client". D.R. 5-102(a). The rule also requires that
"if, after undertaking employment in contemplated or pending
litigation, a lawyer learns or it is obvious that the lawyer
ought to be called as a witness on a significant issue on behalf
of the client, the lawyer shall not serve as an advocate on
issues of fact before the tribunal." D.R. 5-102(c).
New York State's test for whether an attorney must withdraw or
face disqualification turns on more than the fact that an
attorney of record might be called as a witness. In S & S Hotel
Ventures Ltd. Partnership v. 777 S.H. Corp., 69 N.Y.2d 437, 445
(N.Y. 1987), the court held that the mere fact that an attorney
was involved in a transaction at issue, or that his proposed
testimony would be relevant or even "highly useful," is
insufficient to warrant disqualification.*fn17 Under S & S
Hotel Ventures, the critical question is whether the subject
testimony is "necessary," taking into account such factors as
"the significance of the matters, weight of the testimony, and
availability of other evidence." Id. at 446. See also SMI
Indus. Canada Ltd. v. Caelter Indus. Inc., 586 F. Supp. 808, 817
(N.Y.N.D. 1984) (Munson, C.J.) (finding that "[t]he phrase `ought
to be called as a witness' has been narrowly construed to refer
to an attorney who has crucial information in his possession
which must be divulged in the course of a trial."). If the
testimony is "necessary" then the attorney "ought to" testify and
must be disqualified.
In addition, because motions to disqualify are often made for
tactical purposes, they are disfavored and subject to strict
scrutiny. S & S Hotel Ventures, 69 N.Y.2d at 443. The proponent
of disqualification bears a "heavy burden" of proof to show that
counsel's testimony is necessary. First Interregional Advisors
Corp. v. Wolff, 956 F. Supp. 480, 489 (S.D.N.Y. 1997). Finally,
the New York Court of Appeals instructs that the Code of
Professional Conduct is to be construed flexibly so as to provide
"guidance for the courts in determining whether a case would be
tainted by the participation of an attorney or a firm." S & S
Hotel Ventures, 515 N.Y.2d at 444-45.
Debtor does not allege that either Mr. Eryes or Mr. Morris,
counsel for AOS, were necessary witnesses in contending that they
violated D.R. 5-102. He suggests the mere act of placing their
names on the witness list constituted a violation of D.R. 5-102.
It is well settled in the Second Circuit that "a motion to
disqualify an attorney is addressed to the discretion of the
[trial] court, and a ruling thereon will not be overturned absent
a determination of abuse of discretion." Cheng v. GAF Corp.,
631 F.2d 1052, 1055 (2d Cir. 1980), vacated on other grounds,
450 U.S. 903 (1981); Moss v. Moss Tubes, 1998 U.S. Dist. LEXIS
14656, at *9-10 (N.Y.N.D. Sept. 5, 1998) (McAvoy, C.J.). Based on
the record before it, there is no abuse of discretion in ruling
not to disqualify AOS's counsel.
No testimony was ever taken from Mr. Morris or Mr. Eyres at the
July 13, 2003 trial. While Mr. Morris' testimony was relevant in
that he had witnessed the proceedings before the United States
District Court in the Western District of Louisiana, his
testimony was unnecessary since a verbatim transcript of those
proceedings existed and was offered as the only evidence by AOS
at the July 13, 2003 trial.*fn18 In fact, the determination
of the bankruptcy court of whether or not the Debtor's sanction
was dischargeable under 11 U.S.C. § 523(a)(6) was confined to
that record. See In re Ball, No. 02-60810, slip op. at 7
(Bankr. N.D.N.Y. Feb. 10, 2004).
Therefore, this court determines that neither Mr. Morris nor
Mr. Eyres were necessary witnesses at the July 13, 2003 trial and
the bankruptcy court's finding not to revoke their pro hac
vice admission was not an abuse of its discretion.
(e) Violation of Bankruptcy Code Rule 9022-1
Northern District of New York Bankruptcy Local Rule 9022-1
(a) Whenever notice of entry of a contested order or
judgment is required by FRBP 902, the party
submitting said order or judgment shall provide the
clerk with a sufficient number of additional copies
of such order or judgment, a list of the names and
addresses of the parties contesting the entry
thereof, including the name and address of the
submitting party, and the names and addresses of
their respective attorneys.
(b) Noncompliance. Failure to comply with subsection
(a) is cause for the court to vacate its oral order
and deny the relief requested.
At the July 17, 2003 trial, Debtor requested that Judge Gerling
vacate an oral order issued on December 12, 2002 denying Debtor's
motion with regard to striking AOS's pleadings and revoking the
pro hac vice admission of AOS's counsel before the
bankruptcy court as a result of not being properly served a
written copy of the order in compliance with Local Rule 9022-1.
See July 17, 2003 Bankr. Tr. (Dkt. No. 1, Appellant Ex. 5) at
47-49. Debtor now appeals the bankruptcy's court refusal to
vacate its prior oral order.
This Court reads Local Rule 9002-1(b) to provide the bankruptcy
court with discretion in deciding to vacate its prior oral order.
Under the facts of this case, the bankruptcy court did not abuse
Debtor was present at the December 12, 2002 hearing and
presumably heard the oral order and the announced deadline for
the written order. The order in question was entered into the
bankruptcy court's docket on December 27, 2002 (Dkt. No. 1, BK
Dkt., Ex. 15). Courts have found that parties have an affirmative
duty to monitor the bankruptcy dockets to inform themselves of
the entry of orders. See In re Delaney, 29 F.3d 516, 518 (9th
Cir. 1994). "Notification by the clerk is
merely for the convenience of litigants." In re Tutino, 1991
U.S. Dist. LEXIS 10210, at *5 (N.D.N.Y. July 22, 1991) (McCurn,
C.J.) (quoting the Advisory Committee Notes to Federal Bankruptcy
The Debtor fails to articulate any prejudice resulting from his
lack of notice of the written order. Therefore, the Bankruptcy
Court did not abuse its discretion in refusing to vacate its
prior oral order.
Accordingly, it is hereby
ORDERED that the February 10, 2004 Memorandum-Decision and
Order of the Bankruptcy Court is AFFIRMED; and it is further
ORDERED that the February 11, 2004 Memorandum-Decision and
Order of the Bankruptcy Court is AFFIRMED, and it is further
ORDERED that the Clerk of the Court shall serve copies of this
order by regular mail upon the parties to this action.
IT IS SO ORDERED.